GST on aerated drinks, cigarettes & tobacco Revision of the GST Rate: A Detailed Overview
After seven years of implementation, India’s Goods and Services Tax (GST) is about to undergo its first significant rate revision. The suggested modifications seek to efficiently handle revenue losses and simplify tax rates. Here’s a detailed breakdown of the developments:
Introduction to Proposed GST on aerated drinks ,cigarettes & tobacco
The GST Council is gearing up to consider significant changes in the tax structure. A Group of Ministers (GoM) has finalized recommendations that will introduce a special 35% tax rate on harmful (sin) goods such as aerated beverages, cigarettes, and tobacco-related products. Additionally, adjustments in tax rates for over 148 items, including readymade garments, are on the table.
Key Changes Proposed by the GoM
GST on Tobacco & Cigarettes
The GoM suggests increasing the GST rate for harmful goods to 35% from the current highest slab of 28%.
This move is designed to offset revenue losses resulting from rate reductions on essential items.
Clothing
Below ₹1,500: 5% GST
₹1,500 to ₹10,000: 18% GST
Above ₹10,000: 28% GST
Luxury and High-Value Items
Proposed rate hikes on luxury items like cosmetics, watches, and shoes.
For example:
Shoes priced over ₹15,000 and wristwatches costing more than ₹25,000 might be moved to the 28% slab.
Impact on Common Items
The GoM has also proposed rate reductions for specific everyday goods:
Packaged Water (above 20 liters): 18% reduced to 5%.
Bicycles (under ₹10,000): 12% reduced to 5%.
Exercise Notebooks: 12% reduced to 5%.
Indirect Taxation and Luxury Items
The reforms indicate a shift towards linking taxation with product pricing. This approach ensures that luxury goods and high-value items bear higher taxes, affecting primarily those purchasing such items.
GST on Insurance Premiums
The GST Council, during its meeting on December 21 in Jaisalmer, will also consider crucial proposals regarding insurance:
Health Insurance Premiums:
Exemption likely for senior citizens and coverage below ₹5 lakh.
Coverage above ₹5 lakh will continue at the existing 18% GST rate.
Potential premium exemptions for term life insurance.
Other Updates
The GoM, led by Pankaj Chaudhary, requested an extension of six months to deliver its compensation cess report.
Decisions regarding the legal ramifications of eliminating the luxury goods and sin tax are anticipated by March 2026.
